<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File Number 0-25520
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THRUSTMASTER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7175 N.W. EVERGREEN PARKWAY #400
HILLSBORO, OREGON, 97124-5839
(Address of principal executive offices)
(Zip Code)
(503) 615-3200
(Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, no par value 4,893,426 shares
(Class) (Outstanding at August 11, 1999)
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THRUSTMASTER, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets...................................... 2
Consolidated Statements of Operations............................ 3
Consolidated Statements of Cash Flows............................ 4
Consolidated Statements of Changes in
Shareholders' Equity............................................ 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk.......... 11
SIGNATURES.................................................................. 14
</TABLE>
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,450 $ 460
Accounts receivable, net 358 -
Inventories 261 -
Prepaid and other expenses 130 134
Net assets from discontinued operations 10,173 17,737
Income taxes receivable - 2,078
Deferred income taxes - 4,677
-------- --------
Total current assets 13,372 25,086
Plant and equipment, net 718 843
Other 25 25
-------- --------
Total assets $ 14,115 $ 25,954
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating line of credit $ 671 $ 5,821
Accounts payable 1,884 7,202
Accrued liabilities 222 1,378
-------- --------
Total current liabilities 2,777 14,401
Shareholders' equity:
Preferred stock - -
Common stock 24,985 14,846
Accumulated deficit (13,554) (3,262)
Accumulated comprehensive loss (93) (31)
-------- --------
Total shareholders' equity 11,338 11,553
-------- --------
Total liabilities and shareholders' equity $ 14,115 $ 25,954
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 375 $ - $ 721 $ -
Cost of goods sold 140 - 240 -
--------- -------- --------- --------
Gross profit 235 - 481 -
Operating expenses:
Research and engineering 93 - 130 -
Selling, general and administrative 493 203 904 406
--------- -------- --------- --------
Total operating expenses 586 203 1,034 406
Loss from operations (351) (203) (553) (406)
--------- -------- --------- --------
Provision (benefit) from income taxes 4,532 (1,523) 4,532 (2,192)
--------- -------- --------- --------
Discontinued operations
Loss from continuing operations (4,883) 1,320 (5,085) 1,786
Loss from discontinued operations (5,011) (4,149) (5,207) (5,856)
--------- -------- --------- --------
Net loss $ (9,894) $ (2,829) $ (10,292) $ (4,070)
========= ======== ========= ========
Net loss per share from continuing operations:
Basic $ (0.99) $ (0.30) $ (1.05) $ (0.41)
========= ======== ========= ========
Diluted $ (0.99) $ (0.30) $ (1.05) $ (0.41)
========= ======== ========= ========
Net loss per share from discontinued operations:
Basic $ (1.02) $ (0.95) $ (1.07) $ (1.35)
========= ======== ========= ========
Diluted $ (1.02) $ (0.95) $ (1.07) $ (1.35)
========= ======== ========= ========
Weighted average shares outstanding:
Basic 4,932 4,372 4,858 4,337
========= ======== ========= ========
Diluted 4,932 4,372 4,858 4,337
========= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operations:
--------- --------
Net loss $ (10,292) $ (4,070)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation 207 225
Deferred income taxes and taxes receivable 6,561 (93)
Changes in operating assets and liabilities:
Accounts receivable (358) -
Inventories (261) -
Net assets from dicontinued operations 7,564 11,349
Prepaid expenses and other assets 4 -
Payables and accrued liabilities (6,536) (3,686)
--------- --------
Net cash provided by (used in) operating activities (2,917) 1,168
--------- --------
Cash flows used in investing activities:
Purchase of plant and equipment (82) (577)
Cash flows from financing activities:
Payments on line of credit (5,150) (1,110)
Proceeds from issuance of common stock 10,139 364
--------- --------
Net cash provided by (used in) financing activities 4,989 (746)
--------- --------
Net increase (decrease) in cash
and cash equivalents 1,990 (155)
Cash and cash equivalents, beginning of Period 460 449
--------- --------
Cash and cash equivalents, end of Periond $ 2,450 $ 294
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Accumulated
------------------- Accumulated Comprehensive Comprehensive
Shares Amount Deficit Loss Loss
------ ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 4,597 $14,846 $ (3,262) $ (31)
Issuance of stock equity funding 250 9,956
Stock options exercised 44 183 -
Translation Adjustment - - - (62) (62)
Net loss - - (10,292) (10,292)
----- ------- --------- ----- --------
Balance, June 30, 1999 5,141 $24,985 $ (13,554) $ (93)
===== ======= ========= =====
Comprehensive Income, June 30, 1999 $(10,354)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of ThrustMaster, Inc., (the "Company"), an Oregon corporation, and its
wholly-owned subsidiaries, Thrustmaster (Europe) Limited, and its wholly-owned
subsidiary Thrustmaster (Deutschland) GmbH, and have been prepared by the
Company without audit and in conformity with generally accepted accounting
principles for interim financial information pursuant to rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
unaudited consolidated financial statements include all necessary adjustments
(which are of a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. These consolidated financial
statements should be read in conjunction with the Company's audited financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1998. The results of operations for the
periods presented are not necessarily indicative of the results that may be
expected for the entire fiscal year.
While the transaction is subject to customary closing conditions,
including formal approval by the Company's shareholders, the Company has
received irrevocable proxies representing more than 50 percent of the Company's
outstanding shares approving the transaction. Prior to the expected closing in
September 1999, the Company will continue to operate the hardware business for
he benefit of the purchaser. The continuing operations of the Company consist
of its software business which began in mid-1998 and generated minor revenues in
1999. On or before the closing, the Company is expecting to reduce its
workforce to match its future operations.Accumulated Inventories for continuing
operations are stated at the lower of cost or market on a first-in, first-out
basis. These inventories are as follows:
NOTE 2 -- INVENTORIES FOR CONTINUING OPERATIONS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials $ 80 $ -
Finished goods 181 -
----- ---
$ 261 $ -
===== ===
</TABLE>
6
<PAGE>
business has been accounted for as discontinued operations, and accordingly,
their operations are segregated in the accompanying statements of operations.
Revenues from these operations were $11,205 for the first six months fo 1999
$30,821; $45,494 and $25,905 for the years ended December 31, 1996, 1997 and
1998, respectively. Certain expenses have been allocated to discontinued
operations, based on the number of employees remaining with teh software
business, their related employee costs and overhead for facilities and other
realted costs adn corporate overhead expenses, the ratio of net assets
discontinued to the total net assets of the consolidated entity. The components
of net assets of discontinued operations included in the Company's Consolidated
Balance Sheets at June 30, 1999 and December 31, 1998, follow:
On July 27, 1999, the Company entered into an agreement to sell
substantially all of the assets of the hardwaire business and its sales and
return warranty reserved for approximately $15 million in cash (cash is held
in an escrow account pending closing of the transaction), subject to
adjustments in specified circumstances.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, December 31,
---------------------
1999 1998
------- -------
<S> <C> <C>
Accounts receivable, net ........................... $ 4,048 $10,581
Inventories ........................................ 6,173 6,786
Prepaid and other expenses ......................... 341 117
Tooling, net ....................................... 1,228 1,506
------- -------
Warranty accrual ................................... (619) (1,253)
Loss from July 1 through July 27 on discountinued
operations..................................... (998) -
------- -------
Total assets .................................. $10,173 $17,737
======= =======
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
The discussion and analysis below contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The Act provides a "safe harbor" for forward-looking statements
to encourage companies to provide prospective information about themselves so
long as they identify these statements as forward-looking and provide
meaningful cautionary statements identifying important factors that could
cause actual results to differ from the projected results. All statements
other than statements of historical fact that the Company makes in this
Report on Form 10-Q are forward-looking. In particular, statements regarding
year 2000 compliance and compliance costs, the adequacy of funds to meet the
Company's current or future cash needs, the sale of substantialy all of the
Company's hardware business assets and the Company's future results of
operations or financial position are forward-looking statements. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," and similar expressions identify forward-looking statements. But
the absence of these words does not mean the statement is not
forward-looking. The Company cannot guarantee any of the forward-looking
statements which are subject to risks, uncertainties and assumptions that are
difficult to predict. Actual results may differ materially from those the
Company forecasts in forward-looking statements due to a variety of factors,
including those set forth in the Company's annual report on Form 10-K under
the heading "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock." The Company does not intend to update any
forward-looking statements due to new information, future events or otherwise.
SALE OF THE GAME CONTROLLER BUSINESS (DISCONTINUED OPERATIONS)
On July 27, 1999, the Company entered into an agreement to sell
substantially all of the assets of the hardwaire business and its sales and
return warranty reserved for approximately $15 million in cash (cash is held
in an escrow account pending closing of the transaction), subject to
adjustments in specified circumstances. The game controller business has
historically comprised the bulk of the Company's assets, liabilities,
revenues and expenses. From its founding in 1990 through 1997, the Company
was a leader in designing and marketing innovative PC game controller
products. However, commencing in 1997, many larger competitors with greater
economies of scale entered the game controller market creating an extremely
competitive environment characterized by declining prices and increased
marketing costs. Company management determined that the Company could not
achieve the economies of scale necessary to be profitable in the game
controller market in the foreseeable future, and concluded that the Company
should sell the game controller business and invest the proceeds in the
Company's new Internet communications software business. The sale of the game
controller business is expected to close in September 1999.
INTERNET COMMUNICATIONS SOFTWARE BUSINESS (CONTINUING OPERATIONS)
On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to PC gaming and entertainment market where the bulk of the
Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional terms
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.
In February 1999, the Company shipped its first Internet
communications software product into the distribution and retail channels.
The product, called Talk n' Play, incorporates the Intel technology and
allows up to four people in separate locations to conduct a four-way voice
conference over the Internet while they play on-line games. The product also
allows the user to participate in certain Internet communities provided by
PeopleLink, a provider of outsourced Internet community communications. In
June 1999, the Company shipped its second Internet communications product,:
Conference into distribution and retail channel the small-office/home-office
market. iConference provides the same four-way Internet voice conferencing
capability as Talk n' Play and adds the ability for up to four people to
transfer files, share files or share a white board while they are engaged in
their voice conference.
In August 1999, the Company entered into a second license agreement
with Intel Corporation that licensed to the Company additional software
source code that will enable the Company to accelerate the development of its
next generation Internet community, collaboration and communications
products. These new products will target the strategic Internet OEM and
PC-OEM channels with a greatly enhanced solution. Most of the Company's
year-to-date revenue from its new Internet software business has been
generated in the computer retail channel.
The Company shipped its first two Internet communications software
products into the computer distribution and retail channel because the
Company had established relationships in that channel through the sale of
it's hardware game controller products. Moreover, there is significant
overlap between the computer software and computer hardware distribution and
retail channels. This channel is expensive. Distributors and retailers
demand significant financial commitments from the Company with respect to
advertising and marketing and provide little "in store" attention and support
to a vendor's products. The Company's new Internet communications software
products also fall within the new, cutting-edge product category of Internet
community and communications. As a result, the Company plans to
significantly increase it's advertising and marketing efforts to "get the
word out."
The Company believes that Internet community, collaboration and
communications by the mass market is in an early stage of development and
will drive the demand for the convergence of real-time data, voice and video
multimedia interactivity over the Internet. Currently, most of this
technology is "server based." This requires a provider of these services to
buy additional computer equipment in order to constantly "scale-up" to meet
the increased demands of it's subscribers or visitors. The technology the
Company licensed from Intel Corporation is a "client-to-client" solution.
This technology allows a provider to enable it's subscribers or visitors with
a desktop client software solution that will allow those subscribers or
visitors to engage in real-time multimedia communications without being
"tied" to the provider's server. The Company believes that the future of
Internet community, collaboration and communications will be driven by open,
standards-based "client-to-client" technology and solutions.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
8
<PAGE>
RESULTS OF OPERATIONS
On July 27, 1999, the Company entered into an agreement to sell
substantially all of the assets of the hardware business and its sales and
return warranty reserves for approximately $15 million in cash (cash is held
in an escrow account pending closing of the transaction), subject to
adjustments in specified circumstances. While the transaction is subject to
customary closing conditions, including formal approval by the Company's
shareholders, the Company has received irrevocable proxies from shareholders
representing more than 50 percent of the Company's outstanding shares
approving the transaction. Prior to the expected closing in September 1999,
the Company will continue to operate the hardware business for the benefit of
the purchaser. The continuing operations of the Company consist of its
software business which began in mid-1998 and generated minor revenues in
1999. On or before the closing, the Company is expecting to reduce its
workforce to match its future operations.
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items included in the Company's
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues 100.0% -% 100.0% -%
Cost of goods sold 37.3 - 33.3 -
--------- ----------- --------- -----------
Gross profit 62.7 - 66.7 -
Operating expenses:
Research and engineering 24.8 - 18.0 -
Selling, general and administrative 131.5 - 125.4 -
--------- ----------- --------- -----------
Total operating expenses 156.3 - 143.4 -
--------- ----------- --------- -----------
Loss from operations (93.6) - (76.7) -
Provision (benefit) from income taxes (1,208.5) - (628.6) -
--------- ----------- --------- -----------
Loss from continuing operations (1,302.1) - (705.3) -
Loss from discontinued operations (1,336.3) - (722.2) -
--------- ----------- --------- -----------
Net loss (2,638.4)% -% (1,427.5)% -%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
The continuing operations of the Company consist of its software business which
began in mid-1998 and generated minor revenues in 1999.
REVENUES
Revenues for the three months ended June 30, 1999 were $375,000
GROSS PROFIT
Gross profit for the three months ended June 30, 1999 was $235,000.
As a percentage of revenues, gross profit was 62.7% for the three months
ended June 30, 1999.
RESEARCH AND ENGINEERING
Research and engineering expenses were $93,000 for the quarter ended
June 30,1999.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general and administrative expenses were $493,000, which
represents selling costs and associated general and administrative
expense for the three months ended June 30, 1999. Certain expenses have been
allocated to discontinued operations, based on the number of employees
remaining with the software business, their related employee costs and
overhead for facilities and other related costs and coporate overhead
expenses, on the ratio of net assets discontinued to the total net assets of
the consolidated entity.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of
cash flow from operations, borrowed funds, and proceeds from the sale of equity
securities.
In late 1998, the Company entered into a demand discretionary
$16,000,000 line of credit. The Company has not utilized the line as
expected. The Company and the lender have agreed that the Company will replace
the lender by July 31, 1999. The Company and the lender have agreed to
reduce the facility to $2,500,000 and reset advance rates to 45% of eligible
receivables and 30% of eligible inventory (subject to an inventory sub-limit
of $1,500,000). Borrowings are payable on demand and bear interest at a
fluctuating rate equal to the prime rate plus 4%. The line of credit is
collateralized by substantially all of the Company's assets. The line of
credit is a "demand discretionary" credit facility and does not require the
Company to maintain working capital and debt-to-equity ratios. At June 30,
1999, $671,000 was outstanding under the facility and the Company was in
compliance with all loan covenants. The Company paid off the lender on July
30, 1999.
On January 28, 1999, the Company issued to three investors an
aggregate of 250,000 shares of the Company's Common Stock (subject to
adjustment as described below) and warrants exercisable for an aggregate of
70,754 shares of Common Stock for an aggregate of $4,000,000. The exercise
price applicable to 50% of the shares issuable upon exercise of the warrants
is $20.00 per share; the exercise price for the remaining warrant shares is
$22.40 per share. The adjustment period lapsed on July 23, 1999 and no
adjustment shares were issued. The Company may elect, subject to the
satisfaction of certain conditions, to sell one additional tranche of equity
investment. As of the date hereof, the conditions to the additional tranche
of investment have not been satisfied. The amount of the additional tranche
would range from $1,000,000 to $6,000,000 depending on the price of the
Common Stock at the time of the investment. The Company could be required to
issue additional shares of its Common Stock in connection with any additional
tranche of investment to ensure at least a 12.5% return to the investors.
On June 9, 1999, the Company issued and sold to two investors
$6,000,000 aggregate principal amount of the Company's zero coupon Convertible
Debentures due June 9, 2002 (the "Debentures"). The Debentures may be converted
into shares of the Company's Common Stock at any time prior to June 9, 2002.
The number of shares into which each Debenture is convertible is equal to the
outstanding principal amount of the Debenture divided by the conversion price,
which may fluctuate from time to time. See Part II, Item 2.
10
<PAGE>
Net cash used in operating activities was $2,917,000 for the six
months ended June 30, 1999. The primary uses of cash were a net loss of
$10,292,000, an increase in inventories of $261,000, and a decrease in
payables and accrued liabilities of $6,536,000. These uses were offset in
part by decreases in deferred income taxes and taxes receivable assets hold
for sale of $6,755,000 and $7,564,000, respectively. This compares to net
cash provided by operating activities of $1,168,000 for the six months ended
June 30, 1998.
Capital expenditures for the six months ended June 30, 1999 were
$82,000, compared to $577,000 for the same period in the prior year. These
expenditures were primarily for new computer equipment.
The Company believes that available funds to be generated by the
aforementioned sale of the hardware business and the issuance of additional
equity as described above will be adequate to meet the Company's cash needs
during the next Twelve months. The Company may require additional capital
beyond the amounts currently forecasted by the Company. Any such required
additional capital may not be available on reasonable terms, if at all, at
such time or times as required by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of June 30, 1999, the Company had cash and cash equivalents of
$2,450,000 compared to $460,000 as of December 31, 1998. The Company invests its
cash in highly liquid marketable securities with maturities of three months or
less at date of purchase. The Company does not invest in derivative securities.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs written using two,
rather than four, digits to define the applicable year. These computer
programs may recognize a date using "00" as the year 1900 instead of 2000 and
cause system failures or miscalculations or material disruptions of business
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business operations.
If the Company or its significant customers, suppliers, service providers and
other related third parties fail to take the necessary steps to correct or
replace these problematic computer programs, the Year 2000 issue could have a
material adverse effect on the Company. The Company cannot, however, quantify
the impact at this time.
The Company has begun upgrading or replacing the software packages
underlying its financial, production, communication, desktop and other systems,
as appropriate, to address the Year 2000 issue. It has also performed an
in-depth analysis of its products and begun to modify those that are not Year
2000 compliant. Moreover, the Company has begun to contact all major external
third parties that provide products and services to the Company to assess their
readiness for the Year 2000.
Management believes it has completed the review and assessment phase of
affected systems within the Company and those which are external to the Company.
This assessment indicated that most of the Company's significant internal
information systems could be affected by the Year 2000 issue, and that the
Company may be negatively impacted by non-compliance of related third parties.
The Company has begun the remediation phase of the Company's internal
information technology systems and has set September 1999 as the target for Year
2000 compliance of all of the Company's internal information technology systems.
The Company's internal information technology systems include its finance
systems and those systems used in the research and development of the Company's
products.
The Company is in the process of creating contingency plans for its
internal information technology systems. These contingency plans are expected to
be in place by September 30, 1999. In the
11
<PAGE>
event the Company's information technology systems are not Year 2000 compliant
by September 30, 1999, the Company will decide at that time whether to
implement the necessary contingency plans.
The Company has queried its important suppliers and service providers
and has obtained assurances from those third parties that they are or will be
Year 2000 compliant. The inability of those parties to become Year 2000
compliant could have a material adverse effect on the Company. The effects of
non-compliance by third parties where no system interface exists is not
determinable.
The Company has made and will continue to make investments in systems
and applications to address Year 2000 issues. The Company has not tracked all
internal resources dedicated to the resolution of the Year 2000 issue and,
therefore, is unable to quantify precisely internal costs incurred to date that
are associated with the Year 2000 issue. Identifiable expenditures for these
investments were approximately $46,000 through June 30, 1999. Management
estimates that additional expenditures in 1999 will total approximately $84,000.
Investments to address the Year 2000 issue have been, and are expected to be,
funded through cash generated from operations.
The Company's plans to complete the Year 2000 modifications are based
upon management's best estimates, which were derived utilizing numerous
assumptions of future events, including continued availability of certain
resources, and other factors. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such material differences include the
availability and cost of personnel trained in this area and the ability to
locate and correct all relevant computer codes.
12
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 9, 1999, the Company and two investors, Strong River
Investments Inc. ("Strong River") and Bay Harbor Investments Inc. (collectively,
the "Investors") entered into a Convertible Debenture Purchase Agreement (the
"Debenture Purchase Agreement") pursuant to which the Investors purchased
$6,000,000 aggregate principal amount of the Company's zero coupon Convertible
Debentures due June 9, 2002 (the "Debentures").
The Debentures may be converted into shares of the Company's Common
Stock at any time prior to June 9, 2002. The number of shares into which each
Debenture is convertible is equal to the outstanding principal amount of the
Debenture divided by the conversion price. The conversion price for the first 89
days after June 9, 1999 (the "Closing Date") is $24.00. During the period
commencing on the date 90 days and ending on the date 300 days after the Closing
Date, the conversion price will be the lesser of (a) $24.00 and (b) 88.89% of
the average of the lowest closing bid prices per share of the Company's Common
Stock during the 25 trading days preceding the conversion date. After the date
300 days after the Closing Date, the conversion price will remain equal to the
conversion price in effect on the date 300 days after the Closing Date.
In connection with the Debenture Purchase Agreement, the Company agreed
to issue a warrant to Strong River (the "Warrant") in exchange for Strong
River's waiver of certain rights under the Securities Purchase Agreement, dated
as of January 28, 1999, between the Company, Strong River and two private
investors. The number of shares of the Company's Common Stock issuable upon
exercise of the Warrant depended upon the market price of the Common Stock
during specified periods. Due to the market price of the Company's Common Stock
during these periods, the Company will not be required to issue any shares of
Common Stock under the Warrant.
The initial sale of the Debentures and the Warrant was not registered
under the Securities Act of 1933, as amended (the "Act"), in reliance on Section
4(2) of the Act for offerings not involving a public offering. The Investors are
sophisticated and "accredited investors," as defined in Section 501(a) under the
Act. The Company did not make a general solicitation in connection with
offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
*3.1 Articles of Incorporation, as amended
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of
Incorporation, as amended (See Exhibit 3.1)
**4.2 Description of Rights of Security Holders contained in the
Amended and Restated Bylaws (See Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
***4.4 Convertible Debenture Purchase Agreement dated as of June 9,
1999 among the Company, Strong River Investments, Inc. and Bay
Harbor Investments, Inc.
***4.5 Form of Convertible Debenture
***4.6 Form of Warrant
***4.7 Registration Rights Agreement dated as of June 9, 1999 among
the Company, Strong River Investments, Inc. and Bay Harbor
Investments, Inc.
10.1 Asset Purchase Agreement dated as of July 26, 1999 amoung
Guillemot Corporation, S.A., and ThrustMaster, Inc.
11.1 Statements Regarding Computation of Per Share Earnings.
27 Financial Data Schedule as of June 30, 1999
- -------------------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed on January 5, 1995, as amended on February 7, 1995,
and February 24, 1995 (File No. 33-88252-LA).
** Incorporated by reference to the same exhibit number from the Company's
Report on Form 10-K for the year ended December 31, 1996.
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed on June 14, 1999.
(b) Reports on Form 8-K:
On June 14, 1999, the Registrant filed a Current Report on Form 8-K
with respect to its entering into a Convertible Debenture Purchase Agreement
and the issuance of its convertible debentures are a warrant in connection
with that agreement.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THRUSTMASTER, INC.
Date: August 16, 1999 By /s/ Frank G. Hausmann
-------------------------------------
Frank G. Hausmann
President and Chief Executive Officer
14
<PAGE>
EXHIBIT 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(Dollars in thousands, except net loss per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - basic 4,932 4,372 4,858 4,337
Common stock equivalents
arising from stock options - - - -
-------------- --------------- ------------- --------------
Weighted average number of
common shares outstanding - diluted 4,932 4,372 4,858 4,337
============== =============== ============= ==============
Net loss from continuing operations $ (4,883) $ 1,320 $ (5,085) $1,786
============== =============== ============= ==============
Net loss from discontinued operations $ (5,011) $ (4,149) $ (5,207) $ (5,856)
============== =============== ============= ==============
Net loss per share from continuing operations:
Basic $ (0.99) $ 0.30 $ (1.05) $ 0.41
============== =============== ============= ==============
Diluted $ (0.99) $ 0.30 $ (1.05) $ 0.41
============== =============== ============= ==============
Net loss per share from discontinued operations:
Basic $ (1.02) $ (0.95) $ (1.07) $ (1.35)
============== =============== ============= ==============
Diluted $ (1.02) $ (0.95) $ (1.07) $ (1.35)
============== =============== ============= ==============
</TABLE>
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT
REGISTRATION UNDER THE ACT UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH
SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF THRUSTMASTER, INC.
(Subject to Adjustment)
NO. W-INTC2 August 9, 1999
THIS CERTIFIES THAT, for value received, Intel Corporation, or its permitted
registered assigns ("HOLDER"), is entitled, subject to the terms and
conditions of this Warrant, at any time or from time to time after the
issuance date of this Warrant (the "EFFECTIVE DATE"), and before 5:00 p.m.
Pacific Time on the fifth anniversary of the Effective Date (the "EXPIRATION
DATE"), to purchase from Thrustmaster, Inc. an Oregon corporation (the
"Company"), two hundred thousand (200,000) shares of Common Stock of the
Company at a price per share equal to 85% of the average closing price of a
share of the Company's Common Stock over the thirty (30) consecutive trading
days prior to the Effective Date, as reported on the Nasdaq National Market
(the "Purchase Price"). Both the number of shares of Common Stock purchasable
upon exercise of this Warrant and the Purchase Price are subject to
adjustment and change as provided herein.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms
shall have the following respective meanings:
1.1. "FAIR MARKET VALUE" of a share of Common Stock as of a
particular date shall mean:
(a) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be
deemed to be the average of the closing prices of the
Common Stock of the Company on such exchange or
market over the five (5) trading days ending
immediately prior to the applicable date of
valuation;
(b) If actively traded over-the-counter, the Fair Market
Value shall be deemed to be the average of the
closing bid prices over the thirty (30)-day period
ending immediately prior to the applicable date of
valuation; and
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INTEL / THRUSTMASTER CONFIDENTIAL
(c) If there is no active public market, the Fair Market
Value shall be the value thereof, as agreed upon by
the Company and the Holder; provided, however, that
if the Company and the Holder cannot agree on such
value, such value shall be determined by an
independent valuation firm experienced in valuing
businesses such as the Company and jointly selected
in good faith by the Company and the Holder. Fees and
expenses of the valuation firm shall be paid for by
the Company.
1.2. "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
1.3. "REGISTERED HOLDER" shall mean any Holder in whose name this
Warrant is registered upon the books and records maintained by
the Company.
1.4. "WARRANT" as used herein, shall include this Warrant and any
warrant delivered in substitution or exchange therefor as
provided herein.
1.5. "COMMON STOCK" shall mean the Common Stock of the Company and
any other securities at any time receivable or issuable upon
exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. PAYMENT. Subject to compliance with the terms and conditions
of this Warrant and applicable securities laws, this Warrant
may be exercised, in whole or in part at any time or from time
to time, on or before the Expiration Date by the delivery
(including, without limitation, delivery by facsimile) of the
form of Notice of Exercise attached hereto as EXHIBIT 1 (the
"Notice of Exercise"), duly executed by the Holder, at the
principal office of the Company, and as soon as practicable
after such date, surrendering
(a) this Warrant at the principal office of the Company,
and
(b) payment, (i) in cash (by check) or by wire transfer,
(ii) by cancellation by the Holder of indebtedness of
the Company to the Holder; or (iii) by a combination
of (i) and (ii), of an amount equal to the product
obtained by multiplying the number of shares of
Common Stock being purchased upon such exercise by
the then effective Purchase Price (the "Exercise
Amount"), except that if Holder is subject to HSR Act
Restrictions (as defined in Section 2.5 below), the
Exercise Amount shall be paid to the Company within
five (5) business days of the termination of all HSR
Act Restrictions.
2.2. NET ISSUE EXERCISE. In lieu of the payment methods set forth
in Section 2.1(b) above, the Holder may elect to exchange all
or some of this Warrant for shares of Common Stock equal to
the value of the amount of the Warrant being exchanged on the
date of exchange. If Holder elects to exchange this Warrant as
provided in
2
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
this Section 2.2, Holder shall tender to the Company the
Warrant for the amount being exchanged, along with written
notice of Holder's election to exchange some or all of the
Warrant, and the Company shall issue to Holder the number of
shares of the Common Stock computed using the following
formula:
X = Y (A-B)
-------------
A
Where X = the number of shares of Common Stock to be issued
to Holder.
Y = the number of shares of Common Stock
purchasable under the amount of the Warrant
being exchanged (as adjusted to the date of
such calculation).
A = Fair Market Value of one share of the Common Stock.
B = Purchase Price (as adjusted to the date of
such calculation).
2.3. "EASY SALE" EXERCISE. In lieu of the payment methods set forth
in Section 2.1(b) above, when permitted by law and applicable
regulations (including Nasdaq and NASD rules), the Holder may
pay the Exercise Amount through a "same day sale" commitment
from the Holder (and if applicable a broker-dealer that is a
member of the National Association of Securities Dealers (a
"NASD Dealer")), whereby the Holder irrevocably elects to
exercise this Warrant and to sell at least that number of
Shares so purchased to pay the Exercise Amount (and up to all
of the Shares so purchased) and the Holder (or, if applicable,
the NASD Dealer) commits upon sale (or, in the case of the
NASD Dealer, upon receipt) of such Shares to forward the
Exercise Amount directly to the Company, with any sale
proceeds in excess of the Exercise Amount being for the
benefit of the Holder.
2.4. STOCK CERTIFICATES; FRACTIONAL SHARES. As soon as practicable
on or after the date of any exercise of this Warrant, the
Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for
the number of whole shares of Common Stock issuable upon such
exercise, together with cash in lieu of any fraction of a
share equal to such fraction of the current Fair Market Value
of one whole share of Common Stock as of such date of
exercise. No fractional shares or scrip representing
fractional shares shall be issued upon an exercise of this
Warrant.
2.5. HSR ACT. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to
the filing requirements of the HSR Act and that Holder may be
prevented from exercising this Warrant until the expiration or
early termination of all waiting periods imposed by the HSR
Act
3
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
("HSR Act Restrictions"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and
Holder has not been able to complete the exercise of this
Warrant prior to the Expiration Date because of HSR Act
Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the
procedures contained herein notwithstanding the fact that
completion of the exercise of this Warrant would take place
after the Expiration Date.
2.6. PARTIAL EXERCISE; EFFECTIVE DATE OF EXERCISE. In case of any
partial exercise of this Warrant, the Company shall cancel
this Warrant upon surrender hereof and shall execute and
deliver a new Warrant of like tenor and date for the balance
of the shares of Common Stock purchasable hereunder. This
Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender
for exercise as provided above. However, if Holder is subject
to HSR Act filing requirements this Warrant shall be deemed to
have been exercised on the date immediately following the date
of the expiration of all HSR Act Restrictions. The person
entitled to receive the shares of Common Stock issuable upon
exercise of this Warrant shall be treated for all purposes as
the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised
this Warrant.
3. VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid and
non-assessable, and the Company shall pay all taxes and other
governmental charges that may be imposed in respect of the issue or
delivery thereof. The Company shall not be required to pay any tax or
other charge imposed in connection with any transfer involved in the
issuance of any certificate for shares of Common Stock in any name
other than that of the Registered Holder of this Warrant, and in such
case the Company shall not be required to issue or deliver any stock
certificate or security until such tax or other charge has been paid,
or it has been established to the Company's reasonable satisfaction
that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares
of Common Stock issuable upon exercise of this Warrant (or any shares
of stock or other securities or property receivable or issuable upon
exercise of this Warrant) and the Purchase Price are subject to
adjustment upon occurrence of the following events:
4.1. ADJUSTMENT FOR STOCK SPLITS, STOCK SUBDIVISIONS OR
COMBINATIONS OF SHARES. The Purchase Price of this Warrant
shall be proportionally decreased and the number of shares of
Common Stock issuable upon exercise of this Warrant (or any
shares of stock or other securities at the time
4
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
issuable upon exercise of this Warrant) shall be
proportionally increased to reflect any stock split or
subdivision of the Company's Common Stock. The Purchase
Price of this Warrant shall be proportionally increased
and the number of shares of Common Stock issuable upon
exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this
Warrant) shall be proportionally decreased to reflect
any combination of the Company's Common Stock.
4.2. ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or
issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other
distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon
exercise of the Warrant) payable in (a) securities of the
Company or (b) assets (excluding cash dividends paid or
payable solely out of retained earnings), then, in each such
case, the Holder of this Warrant on exercise hereof at any
time after the consummation, effective date or record date of
such dividend or other distribution, shall receive, in
addition to the shares of Common Stock (or such other stock or
securities) issuable on such exercise prior to such date, and
without the payment of additional consideration therefor, the
securities or such other assets of the Company to which such
Holder would have been entitled upon such date if such Holder
had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and
all such additional securities or other assets distributed
with respect to such shares as aforesaid during such period
giving effect to all adjustments called for by this Section 4.
4.3. RECLASSIFICATION. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as
to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or
classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other
change, and the Purchase Price therefor shall be appropriately
adjusted, all subject to further adjustment as provided in
this Section 4. No adjustment shall be made pursuant to this
Section 4.3 upon any conversion or redemption of the Common
Stock which is the subject of Section 4.5.
4.4. ADJUSTMENT FOR CAPITAL REORGANIZATION, MERGER OR
CONSOLIDATION. In case of any capital reorganization of the
capital stock of the Company (other than a combination,
reclassification, exchange or subdivision of shares otherwise
provided for herein), or any merger or consolidation of the
Company with or into another corporation, or the sale of all
or substantially all the assets of the Company then, and in
each such case, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be
made so that the Holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price
then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting
from such reorganization, merger,
5
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
consolidation, sale or transfer that a holder of the shares
deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 4. The foregoing
provisions of this Section 4.4 shall similarly apply to
successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise
of this Warrant. If the per-share consideration payable to
the Holder hereof for shares in connection with any such
transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be
determined in good faith by the Company's Board of Directors.
In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably
may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
4.5. CONVERSION OF COMMON STOCK. In case all or any portion of the
authorized and outstanding shares of Common Stock of the
Company are redeemed or converted or reclassified into other
securities or property pursuant to the Company's Articles of
Incorporation or otherwise, or the Common Stock otherwise
ceases to exist, then, in such case, the Holder of this
Warrant, upon exercise hereof at any time after the date on
which the Common Stock is so redeemed or converted,
reclassified or ceases to exist (the "Termination Date"),
shall receive, in lieu of the number of shares of Common Stock
that would have been issuable upon such exercise immediately
prior to the Termination Date, the securities or property that
would have been received if this Warrant had been exercised in
full and the Common Stock received thereupon had been
simultaneously converted immediately prior to the Termination
Date, all subject to further adjustment as provided in this
Warrant. Additionally, the Purchase Price shall be immediately
adjusted to equal the quotient obtained by dividing (x) the
aggregate Purchase Price of the maximum number of shares of
Common Stock for which this Warrant was exercisable
immediately prior to the Termination Date by (y) the number of
shares of Common Stock of the Company for which this Warrant
is exercisable immediately after the Termination Date, all
subject to further adjustment as provided herein.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the
Purchase Price, or number or type of shares issuable upon exercise of
this Warrant, the Chief Financial Officer or Controller of the Company
shall compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based,
including a statement of the adjusted Purchase Price. The Company shall
promptly send
6
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
(by facsimile and by either first class mail, postage prepaid or
overnight delivery) a copy of each such certificate to the Holder.
6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to
the Company of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and of indemnity reasonably satisfactory to
it, and (in the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will execute and deliver in lieu thereof a
new Warrant of like tenor as the lost, stolen, destroyed or mutilated
Warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all
times there shall be reserved for issuance and delivery upon exercise
of this Warrant such number of shares of Common Stock or other shares
of capital stock of the Company as are from time to time issuable upon
exercise of this Warrant and, from time to time, will take all steps
necessary to amend its Articles of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon exercise of this
Warrant. All such shares shall be duly authorized, and when issued upon
such exercise, shall be validly issued, fully paid and non-assessable,
free and clear of all liens, security interests, charges and other
encumbrances or restrictions on sale and free and clear of all
preemptive rights, except encumbrances or restrictions arising under
federal or state securities laws. Issuance of this Warrant shall
constitute full authority to the Company's officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of
this Warrant.
8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this
Warrant and compliance with all applicable securities laws, this
Warrant and all rights hereunder may be transferred to any Registered
Holder's parent, subsidiary or affiliate, in whole or in part, on the
books of the Company maintained for such purpose at the principal
office of the Company referred to above, by the Registered Holder
hereof in person, or by duly authorized attorney, upon surrender of
this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer.
Upon any permitted partial transfer, the Company will issue and deliver
to the Registered Holder a new Warrant or Warrants with respect to the
shares of Common Stock not so transferred. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that
when this Warrant shall have been so endorsed, the person in possession
of this Warrant may be treated by the Company, and all other persons
dealing with this Warrant, as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; provided, however that
until a transfer of this Warrant is duly registered on the books of the
Company, the Company may treat the Registered Holder hereof as the
owner for all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees
that, absent an effective registration statement filed with the
Securities and Exchange Commission (the "SEC") under the Securities Act
covering the disposition or sale of this
7
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
Warrant or the Common Stock issued or issuable upon exercise hereof,
as the case may be, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer,
pledge, or hypothecate any or all such Warrants or such Common Stock,
as the case may be, unless either (i) the Company has received an
opinion of counsel, in form and substance reasonably satisfactory to
the Company, to the effect that such registration is not required in
connection with such disposition or (ii) the sale of such securities
is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the
Holder hereby represents, warrants and covenants that any shares of
stock purchased upon exercise of this Warrant shall be acquired for
investment only and not with a view to, or for sale in connection with,
any distribution thereof; that the Holder has had such opportunity as
such Holder has deemed adequate to obtain from representatives of the
Company such information as is necessary to permit the Holder to
evaluate the merits and risks of its investment in the Company; that
the Holder is able to bear the economic risk of holding such shares as
may be acquired pursuant to the exercise of this Warrant for an
indefinite period; that the Holder understands that the shares of stock
acquired pursuant to the exercise of this Warrant will not be
registered under the 1933 Act (unless otherwise required pursuant to
exercise by the Holder of the registration rights, if any, granted to
the Registered Holder) and will be "restricted securities" within the
meaning of Rule 144 under the 1933 Act and that the exemption from
registration under Rule 144 will not be available for at least one (1)
year from the date of exercise of this Warrant, subject to any special
treatment by the SEC for exercise of this Warrant pursuant to Section
2.2, and even then will not be available unless a public market then
exists for the stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule
144 are complied with; and that all stock certificates representing
shares of stock issued to the Holder upon exercise of this Warrant or
upon conversion of such shares may have affixed thereto a legend
substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
8
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not
entitle the Holder to any voting rights or other rights as a
stockholder of the Company. In the absence of affirmative action by
such Holder to purchase Common Stock by exercise of this Warrant, no
provisions of this Warrant, and no enumeration herein of the rights or
privileges of the Holder hereof shall cause such Holder hereof to be a
stockholder of the Company for any purpose.
12. REGISTRATION RIGHTS. All shares of Common Stock issuable upon exercise
of this Warrant shall be "Registrable Securities" or such other
definition of securities entitled to registration rights pursuant to
Exhibit 3 to this Warrant.
13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Holder that:
13.1. DUE AUTHORIZATION; CONSENTS. All corporate action on the part
of the Company, its officers, directors and shareholders
necessary for (a) the authorization, execution and delivery
of, and the performance of all obligations of the Company
under, this Warrant, and (b) the authorization, issuance,
reservation for issuance and delivery of all of the Common
Stock issuable upon exercise of this Warrant, has been duly
taken. This Warrant constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms,
subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium, reorganization and similar
laws affecting creditors' rights generally and to general
equitable principles. All consents, approvals and
authorizations of, and registrations, qualifications and
filings with, any federal or state governmental agency,
authority or body, or any third party, required in connection
with the execution, delivery and performance of this Warrant
and the consummation of the transactions contemplated hereby
and thereby have been obtained.
13.2. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power to
own, lease and operate its property and to carry on its
business as now being conducted and as currently proposed to
be conducted.
13.3. SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has duly filed with the SEC the Company's
annual report on Form 10-K for the year ended
December 31, 1998 and its quarterly reports on Form
10-Q for the quarters ended March 31, 1999 and June
30, 1999 (to be filed on or before August 15, 1999)
(collectively, the "Thrustmaster SEC Reports"). As of
their respective filing dates, the Thrustmaster SEC
Reports complied in all material respects with the
requirements of the Securities Exchange Act of 1934,
as amended, and none of the SEC Documents contained
any untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary to make the statements made therein, in
light of the circumstances in which they were
9
<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
made, not misleading, except to the extent corrected
by a subsequently filed document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes)
contained in the Thrustmaster SEC Reports complied as
to form in all material respects with the applicable
published rules and regulations of the SEC with
respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a
consistent basis throughout the periods involved
(except as may be indicated in the notes to such
financial statements or, in the case of unaudited
statements, as permitted for by Form 10-Q) and
presented fairly, in all material respects, the
consolidated financial position of the Company and
its subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited
interim financial statements are subject to normal
and recurring year-end adjustments which are not
expected to be material in amount.
13.4. CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock and 5,000,000
shares of preferred stock, $.001 par value (the "Preferred
Stock"). As of June 30, 1999: (i) 4,874,019 shares of Common
Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) 2,200,000 shares of
Common Stock were reserved for issuance under the Company's
1994 and 1998 stock option plans, 985,388 of which shares were
subject to options outstanding on such date; (iii) 338,393
shares of Common Stock were reserved for issuance upon
exercise of outstanding warrants; and (v) no shares of
Preferred Stock were issued and outstanding. No material
change in such capitalization has occurred between June 30,
1999 and the issuance date of this Warrant.
13.5. VALID ISSUANCE OF STOCK. The outstanding shares of the capital
stock of the Company are duly and validly issued, fully paid
and non-assessable, and such shares, and all outstanding
options and other securities of the Company, have been issued
in full compliance with the registration and prospectus
delivery requirements of the Securities Act and the
registration and qualification requirements of all applicable
state securities laws, or in compliance with applicable
exemptions therefrom, and all other provisions of applicable
federal and state securities laws, including without
limitation, anti-fraud provisions.
13.6. GOVERNMENTAL CONSENTS. All consents, approvals, orders,
authorizations or registrations, qualifications, declarations
or filings with any federal or state governmental authority on
the part of the Company required in connection with the
consummation of the transactions contemplated herein shall
have been obtained prior to and be effective as of the
Effective Date.
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INTEL / THRUSTMASTER CONFIDENTIAL
14. INFORMATION RIGHTS. The Company shall deliver to each holder of this
Warrant or any securities issued (directly or indirectly) upon exercise
hereof, upon request, copies of the Company's reports on Forms 10-K,
10-Q, and 8-K and Annual Reports to Shareholders promptly after such
documents are filed with the SEC.
15. NOTICES. Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have
been duly given (a) when hand delivered to the other party; (b) when
received when sent by facsimile at the address and number set forth
below; (c) three business days after deposit in the U.S. mail with
first class or certified mail receipt requested postage prepaid and
addressed to the other party as set forth below; or (d) the next
business day after deposit with a national overnight delivery service,
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party
receives a confirmation of delivery from the delivery service provider.
<TABLE>
<CAPTION>
<S> <C>
To Holder: To the Company:
Intel Corporation Thrustmaster, Inc.
2200 Mission College Blvd. 7175 NW Evergreen Parkway, Suite 400
Santa Clara, CA 95052 Hillsboro, Oregon 97124
Attn: Portfolio Manager Attn: Frank G. Hausmann, President and CEO
Fax Number: (408) 765-6038 Fax Number: 503-615-3297
With copies to: With copies to:
Intel Corporation Perkins Coie LLP
2200 Mission College Blvd. 1211 SW Fifth Avenue, Suite 1500
Santa Clara, CA 95052 Portland, OR 97204
Attn: General Counsel Attn: Patrick J. Simpson
Fax Number: (408) 765-1859 Fax: (503) 727-2222
</TABLE>
Each person making a communication hereunder by facsimile shall
promptly confirm by telephone to the person to whom such communication
was addressed each communication made by it by facsimile pursuant
hereto but the absence of such confirmation shall not affect the
validity of any such communication. A party may change or supplement
the addresses given above, or designate additional addresses, for
purposes of this Section 15 by giving the other party written notice of
the new address in the manner set forth above.
16. HEADINGS. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
17. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of Delaware.
11
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INTEL / THRUSTMASTER CONFIDENTIAL
18. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or bylaws, or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times
in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order
to protect the rights of the Registered Holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any shares of stock
issuable upon the exercise of this Warrant above the amount payable
therefor upon such exercise, and (b) will take all such action as may
be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable shares of Common Stock upon
exercise of this Warrant.
19. NOTICES OF RECORD DATE. In case:
19.1. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable
upon the exercise of this Warrant), for the purpose of
entitling them to receive any dividend or other distribution,
or any right to subscribe for or purchase any shares of stock
of any class or any other securities or to receive any other
right; or
19.2. of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the
Company, any reclassification of the Capital Stock of the
Company, or any conveyance of all or substantially all of the
assets of the Company to another corporation in which holders
of the Company's stock are to receive stock, securities or
property of another corporation; or
19.3. of any voluntary dissolution, liquidation or winding-up of the
Company; or
19.4. of any redemption or conversion of all outstanding Common
Stock;
then, and in each such case, the Company will mail or cause to be
mailed to the Registered Holder of this Warrant a notice specifying, as
the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, or (ii) the date on
which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation, winding-up, redemption or
conversion is to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this
Warrant), shall be entitled to exchange their shares of Common Stock
(or such other stock or securities), for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice
shall be delivered at least thirty (30) days prior to the date therein
specified.
20. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of
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INTEL / THRUSTMASTER CONFIDENTIAL
the terms, provisions, covenants and restrictions of this Warrant
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
21. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Warrant may be executed by the parties hereto and
each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
22. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date
of this Warrant enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of this
Warrant or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that
have been waived.
23. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall
automatically be extended until 5:00 p.m. the next business day.
24. CONFIDENTIALITY. Confidential or proprietary information disclosed by
either party under this Agreement, as well as the terms of this
Agreement and Holder's investment in the Company (subject to Section 25
below), shall be considered confidential information (the "CONFIDENTIAL
INFORMATION") and shall not be disclosed by the Company or Holder to
any third party. The Company or Holder shall immediately notify the
other party of any information that comes to its attention which might
indicate that there has been a loss of confidentiality with respect to
the Confidential Information. In the event that the Company or Holder
is requested or becomes legally compelled (by statute or regulation or
by oral questions, interrogatories, request for information or
documents, subpoena, criminal or civil investigative demand or similar
process, including without limitation, in connection with any public or
private offering of the Company's capital stock) to disclose any of the
Confidential Information, such party (the "DISCLOSING PARTY") shall
provide the other party (the "NON-DISCLOSING PARTY") with prompt
written notice of that fact so that the other party may seek (with the
cooperation and reasonable efforts of the Disclosing Party) a
protective order, confidential treatment or other appropriate remedy.
In such event, the Disclosing Party shall furnish only that portion of
the Confidential Information which is legally required and shall
exercise reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the Confidential Information to
the extent reasonably requested by the Non-Disclosing Party. The
provisions of this Section 24 shall be in addition to, and not in
substitution for, the provisions of any separate nondisclosure
agreement executed by the parties hereto with respect to the
transaction contemplated hereby.
25. PUBLIC ANNOUNCEMENTS. The Company shall not issue any press release or
make any other announcement to the general public or in any
professional or trade publication regarding Holder, this Agreement or
any of the terms hereof without the prior written consent of Holder,
which consent may be withheld at the sole discretion of Holder.
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INTEL / THRUSTMASTER CONFIDENTIAL
Notwithstanding the foregoing, Holder may disclose its investment in
the Company and the terms thereof to third parties or to the public at
its discretion, and the Company shall have the right to disclose to
third parties any such information disclosed by Holder in a press
release or other public announcement. If the Company or Holder
determines that any disclosure not otherwise authorized by this
Agreement is required by law or regulation, then the provisions of
Section 24 regarding disclosure of Confidential Information by a
Disclosing Party shall govern.
26. DISPUTE RESOLUTION. The parties agree to negotiate in good faith to
resolve any dispute between them regarding this Warrant. If the
negotiations do not resolve the dispute to the reasonable satisfaction
of both parties, then each party shall nominate one senior officer of
the rank of Vice President or higher as its representative. These
representatives shall, within thirty (30) days of a written request by
either party to call such a meeting, meet in person and alone (except
for one assistant for each party) and shall attempt in good faith to
resolve the dispute. If the disputes cannot be resolved by such senior
managers in such meeting, the parties agree that they shall, if
requested in writing by either party, meet within thirty (30) days
after such written notification for one day with an impartial mediator
and consider dispute resolution alternatives other than litigation. If
an alternative method of dispute resolution is not agreed upon within
thirty (30) days after the one day mediation, either party may begin
litigation proceedings. This procedure shall be a prerequisite before
taking any additional action hereunder.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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INTEL / THRUSTMASTER CONFIDENTIAL
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
<TABLE>
<CAPTION>
INTEL CORPORATION THRUSTMASTER, INC.
<S> <C>
- -------------------------------------------------------- -----------------------------------------------------
By: /s/ Frank G. Hausmann By: /s/ Arvind Sodhani
- -------------------------------------------------------- -----------------------------------------------------
Printed Name Printed Name
Frank G. Hausmann Arvind Sodhani
- -------------------------------------------------------- -----------------------------------------------------
Title: President and Chief Executive Officer Title: Treasurer
</TABLE>
SIGNATURE PAGE TO WARRANT TO PURCHASE COMMON STOCK
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<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
THRUSTMASTER, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
the securities Thrustmaster, Inc., as provided for therein, and (check the
applicable box):
/ / tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the
amount of $____________ for _________ such securities.
/ / Elects the [Net Issue Exercise][Easy Sale Exercise] option pursuant to
Section 2.2 or 2.3 of the Warrant, and accordingly requests delivery of
a net of ______________ of such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
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INTEL / THRUSTMASTER CONFIDENTIAL
EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, hereby sells, assigns and transfers unto _________________
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
____________________________ attorney, to transfer said Warrant Certificate
on the books of the within-named Company with respect to the number of
Warrants set forth below, with full power of substitution in the premises:
<TABLE>
<CAPTION>
- --------------------------------------- ------------------------------------- ------------------------------------
NAME(S) OF ASSIGNEE(S) ADDRESS # OF WARRANTS
<S> <C> <C>
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------- ------------------------------------
</TABLE>
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
---------------------------------------------------------------------
Dated:
---------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
Notice: The signature to the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever; signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
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<PAGE>
INTEL / THRUSTMASTER CONFIDENTIAL
EXHIBIT 3
1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. For purposes of this Section 1:
(a) REGISTRATION. The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by
preparing and filing a registration statement in
compliance with the Securities Act of 1933, as
amended, (the "SECURITIES ACT"), and the declaration
or ordering of effectiveness of such registration
statement
(b) REGISTRABLE SECURITIES. The term "REGISTRABLE
SECURITIES" means: (1) any Common Stock of the
Company issued or to be issued upon exercise of the
Warrant, (2) any shares of Common Stock of the
Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security
which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement
of, any shares of Common Stock described in clause
(1) of this subsection (b) and (3) any other Common
Stock of the Company owned or hereafter acquired by
the Investor, including without limitation those
shares of Common Stock of the Company issuable upon
exercise of that Warrant to purchase Common Stock of
the Company held by Holder dated as of May 28, 1998,
as amended. Notwithstanding the foregoing,
"Registrable Securities" shall exclude any
Registrable Securities sold by a person in a
transaction in which rights under this Section 1 are
not assigned in accordance with this Agreement or any
Registrable Securities sold in a public offering,
whether sold pursuant to Rule 144 promulgated under
the Securities Act, or in a registered offering, or
otherwise.
(c) REGISTRABLE SECURITIES THEN OUTSTANDING. The number
of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall mean the number of shares of
Common Stock of the Company that are Registrable
Securities and (l) are then issued and outstanding or
(2) are then issuable pursuant to an exercise of the
Warrant or pursuant to conversion of securities
issuable pursuant to an exercise of the Warrant.
(d) HOLDER. For purposes of this Section 1, the term
"HOLDER" means any person owning of record
Registrable Securities that have not been sold to the
public or pursuant to Rule 144 promulgated under the
Securities Act or any permitted assignee of record of
such Registrable Securities to whom rights under this
Section 1 have been duly assigned in accordance with
this Agreement.
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INTEL / THRUSTMASTER CONFIDENTIAL
(e) FORM S-3. The term "FORM S-3" means such form under
the Securities Act as is in effect on the date hereof
or any successor registration form under the
Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial
information by reference to other documents filed by
the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the U.S.
Securities and Exchange Commission.
1.2 LIMITATION ON REGISTRATION RIGHTS. The Holders may not
piggyback on any registration statement initiated pursuant to
the Registration Rights Agreement, dated as of June 9, 1999,
among the Company, Strong River Investment Inc., and Bay
Harbor Investments, Inc. (the "1999 Agreement"). If any Holder
elects to piggyback on any registration statement initiated
under the Representative Warrant Agreement, dated as of
March 3, 1995, among the Company, Cruttenden Roth, and Black &
Company, Inc. (the "1995 Agreement"), then, in the event that
an underwriter requires a limitation on the number of shares
that may be included in such registration statement, such
Holder's Registrable Securities may be excluded first until
the Company has fulfilled its obligations under the 1995
Agreement and the 1999 Agreement with respect to the inclusion
of shares thereunder. If any person or entity having
registration rights under the 1995 Agreement or the 1999
Agreement elects to piggyback on a registration statement then
such person's or entity's shares will be excluded only after
that number of the Holders' Registrable Securities are
excluded so that the Company does not violate the terms of the
1995 Agreement or the 1999 Agreement.
1.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days
prior to filing any registration statement under the
Securities Act for purposes of effecting a public offering of
securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of
securities of the Company, but EXCLUDING registration
statements relating to any registration under Section 1.4 of
this Agreement or to any employee benefit plan or a corporate
reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or
any part of the Registrable Securities then held by such
Holder, subject to the provisions of Section 1.2 above. Each
Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by such
Holder shall within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company
in writing, and in such notice shall inform the Company of the
number of Registrable Securities such Holder wishes to include
in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any
Registrable Securities in any subsequent registration
statement or registration
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INTEL / THRUSTMASTER CONFIDENTIAL
statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and
conditions set forth herein.
(a) UNDERWRITING. If a registration statement under which
the Company gives notice under this Section 1.3 is
for an underwritten offering, then the Company shall
so advise the Holders of Registrable Securities. In
such event, the right of any such Holder's
Registrable Securities to be included in a
registration pursuant to this Section 1.3 shall be
conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to
distribute their Registrable Securities through such
underwriting shall enter into an underwriting
agreement in customary form with the managing
underwriter or underwriters selected for such
underwriting (including a market stand-off agreement
of up to 180 days if required by such underwriters).
Notwithstanding any other provision of this
Agreement, if the managing underwriter(s)
determine(s) in good faith that marketing factors
require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may
exclude shares (including up to seventy-five percent
(75%) of the Registrable Securities) from the
registration and the underwriting, and the number of
shares that may be included in the registration and
the underwriting shall be allocated, FIRST to
the Company, and SECOND, to each of the Holders
requesting inclusion of their Registrable
Securities in such registration statement on a pro
rata basis based on the total number of Registrable
Securities then held by each such Holder; PROVIDED,
HOWEVER, that the right of the underwriters
to exclude shares (including Registrable Securities)
from the registration and underwriting as described
above shall be restricted so that (i) the number of
Registrable Securities included in any such
registration is not reduced below twenty-five percent
(25%) of the aggregate number of Registrable
Securities for which inclusion has been requested;
and (ii) all shares that are not Registrable
Securities and are held by any other person,
including, without limitation, any person who is an
employee, officer or director of the Company (or any
subsidiary of the Company) shall first be excluded
from such registration and underwriting before any
Registrable Securities are so excluded. If any Holder
disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter(s),
delivered at least ten (10) business days prior to
the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn
from the registration. For any Holder that is a
partnership, the Holder and the partners and retired
partners of such Holder, or the estates and family
members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing
persons, and for any Holder that is a corporation,
the Holder and all corporations that are affiliates
of
20
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INTEL / THRUSTMASTER CONFIDENTIAL
such Holder, shall be deemed to be a single
"Holder," and any pro rata reduction with respect to
such "Holder" shall be based upon the aggregate
amount of shares carrying registration rights owned
by all entities and individuals included in such
"Holder," as defined in this sentence.
(b) EXPENSES. All expenses incurred in connection with a
registration pursuant to this Section 1.3 (excluding
underwriters' and brokers' discounts and commissions
relating to shares sold by the Holders and legal fees
of counsel for the Holders), including, without
limitation all federal and "blue sky" registration,
filing and qualification fees, printers' and
accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the
Company.
(c) NO LIMIT ON REGISTRATIONS. Except as otherwise
provided herein, there shall be no limit on the
number of times the Holders may request registration
of Registrable Securities under this Section 1.3.
1.4 FORM S-3 REGISTRATION. In case the Company shall at any time
after the first anniversary of the date hereof receive from
any Holder or Holders of a majority of all Registrable
Securities then outstanding a written request or requests that
the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders,
then the Company will:
(a) NOTICE. Promptly give written notice of the proposed
registration and the Holder's or Holders' request
therefor, and any related qualification or
compliance, to all other Holders of Registrable
Securities; and
(b) REGISTRATION. As soon as practicable, effect such
registration and all such qualifications and
compliances as may be so requested and as would
permit or facilitate the sale and distribution of all
or such portion of such Holders or Holders'
Registrable Securities as are specified in such
request, together with all or such portion of the
Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written
request given within twenty (20) days after the
Company provides the notice contemplated by Section
1.4(a); PROVIDED, HOWEVER, that the Company shall not
be obligated to effect any such registration,
qualification or compliance pursuant to this Section
1.4:
(1) if Form S-3 is not available for such
offering by the Holders:
(2) if the Holders, together with the holders of
any other securities of the Company entitled
to inclusion in such registration, propose
to sell Registrable Securities and such
other securities (if any) at an aggregate
price to the public of less than $1,000,000;
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INTEL / THRUSTMASTER CONFIDENTIAL
(3) if the Company shall furnish to the Holders
a certificate signed by the President or
Chief Executive Officer of the Company
stating that in the good faith judgment of
the Board of Directors of the Company, it
would be materially detrimental to the
Company and its shareholders for such Form
S-3 Registration to be effected at such
time, in which event the Company shall have
the right to defer the filing of the Form
S-3 registration statement no more than once
during any twelve month period for a period
of not more than ninety (90) days after
receipt of the request of the Holder or
Holders under this Section 1.4;
(4) if the Company has, within the six (6) month
period preceding the date of such request,
already effected a registration under the
Securities Act other than a registration
from which the Registrable Securities of
Holders have been excluded (with respect to
all or any portion of the Registrable
Securities the Holders requested be included
in such registration) pursuant to the
provisions of Section 1.3(a); or
(5) in any particular jurisdiction in which the
Company would be required to qualify to do
business or to execute a general consent to
service of process in effecting such
registration, qualification or compliance.
(c) EXPENSES. The Company shall pay all expenses incurred
in connection with each registration requested
pursuant to this Section 1.4, (excluding
underwriters' or brokers' discounts and commissions
relating to shares sold by the Holders and legal fees
of counsel for the Holders), including without
limitation federal and "blue sky" registration,
filing and qualification fees, printers' and
accounting fees, and fees and disbursements of
counsel.
(d) DEFERRAL. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the
filing of a registration statement pursuant to this
Section 1.4, a certificate signed by the President or
Chief Executive Officer of the Company stating that
in the good faith judgment of the Board, it would be
materially detrimental to the Company and its
stockholders for such registration statement to be
filed, then the Company shall have the right to defer
such filing for a period of not more than ninety (90)
days after receipt of the request of the initiating
Holders; PROVIDED, HOWEVER, that the Company may not
utilize this right more than once in any twelve (12)
month period.
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INTEL / THRUSTMASTER CONFIDENTIAL
(e) NO LIMIT ON REGISTRATIONS. Except as otherwise
provided herein, there shall be no limit on the
number of times the Holders may request registration
of Registrable Securities under this Section 1.4.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this
Agreement the Company shall, as expeditiously as reasonably
possible:
(a) REGISTRATION STATEMENT. Prepare and file with the SEC
a registration statement with respect to such
Registrable Securities and use its best efforts to
cause such registration statement to become
effective, PROVIDED, HOWEVER, that the Company shall
not be required to keep any such registration
statement effective for more than ninety (90) days.
(b) AMENDMENTS AND SUPPLEMENTS. Prepare and file with the
SEC such amendments and supplements to such
registration statement and the prospectus used in
connection with such registration statement as may be
necessary to comply with the provisions of the
Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) PROSPECTUSES. Furnish to the Holders such number of
copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they
may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by
them that are included in such registration.
(d) BLUE SKY. Use its best efforts to register and
qualify the securities covered by such registration
statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to do business or to
file a general consent to service of process in any
such states or jurisdictions.
(e) UNDERWRITING. In the event of any underwritten public
offering, enter into and perform its obligations
under an underwriting agreement in usual and
customary form, with the managing underwriter(s) of
such offering. Each Holder participating in such
underwriting shall also enter into and perform its
obligations under such an agreement.
(f) NOTIFICATION. Notify each Holder of Registrable
Securities covered by such registration statement at
any time when a prospectus relating thereto is
required to be delivered under the Securities Act of
the happening of any event as a result of which the
prospectus included in such registration statement,
as then in effect, includes an untrue statement of a
material fact or omits to state a material fact
required to be stated therein or necessary to
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INTEL / THRUSTMASTER CONFIDENTIAL
make the statements therein not misleading in the
light of the circumstances then existing.
(g) OPINION AND COMFORT LETTER. Furnish, at the request
of any Holder requesting registration of Registrable
Securities, on the date that such Registrable
Securities are delivered to the underwriters for
sale, if such securities are being sold through
underwriters, or, if such securities are not being
sold through underwriters, on the date that the
registration statement with respect to such
securities becomes effective, (i) an opinion, dated
as of such date, of the counsel representing the
Company for the purposes of such registration, in
form and substance as is customarily given to
underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of
the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the
independent certified public accountants of the
Company, in form and substance as is customarily
given by independent certified public accountants to
underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of
the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to
Sections 1.3 or 1.4 that the selling Holders shall furnish to
the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to
timely effect the Registration of their Registrable
Securities.
1.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 1.3 or
1.4:
(a) BY THE COMPANY. To the extent permitted by law; the
Company will indemnify and hold harmless each Holder,
the partners, officers and directors of each Holder,
any underwriter (as determined in the Securities Act)
for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of
1934, as amended, (the "1934 ACT"), against any
losses, claims, damages, or Liabilities (joint or
several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following
statements, omissions or violations (collectively a
"VIOLATION"):
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INTEL / THRUSTMASTER CONFIDENTIAL
(i) any untrue statement or alleged untrue
statement of a material fact contained in
such registration statement, including any
preliminary prospectus or final prospectus
contained therein or any amendments or
supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be
stated therein, or necessary to make the
statements therein not misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act,
any federal or state securities law or any
rule or regulation promulgated under the
Securities Act, the 1934 Act or any federal
or state securities law in connection with
the offering covered by such registration
statement;
and the Company will reimburse each such Holder,
partner, officer or director, underwriter or
controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in
connection with investigating or defending any such
loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in
this subsection 1.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected
without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that
it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with
written information furnished expressly for use in
connection with such registration by such Holder,
partner, officer, director, underwriter or
controlling person of such Holder.
(b) BY SELLING HOLDERS. To the extent permitted by law,
each selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its
officers who have signed the registration statement,
each person, if any, who controls the Company within
the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such
registration statement or any of such other Holder's
partners, directors or officers or any person who
controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses,
claims, damages or liabilities (joint or several) to
which the Company or any such director, officer,
controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of
such other Holder may become subject under the
Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to
the extent (and only to the extent) that such
Violation occurs in reliance upon
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INTEL / THRUSTMASTER CONFIDENTIAL
and in conformity with written information furnished
by such Holder expressly for use in connection with
such registration; and each such Holder will
reimburse any legal or other expenses reasonably
incurred by the Company or any such director,
officer, controlling person, underwriter or other
Holder, partner, officer, director or controlling
person of such other Holder in connection with
investigating or defending any such loss, claim,
damage, liability or action: PROVIDED, HOWEVER, that
the indemnity agreement contained in this
subsection 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage,
liability or action if such settlement is effected
without the consent of the Holder, which consent
shall not be unreasonably withheld; and PROVIDED,
FURTHER, that the total amounts payable in indemnity
by a Holder under this Section 1.7(b) in respect of
any Violation shall not exceed the net proceeds
received by such Holder in the registered offering
out of which such Violation arises.
(c) NOTICE. Promptly after receipt by an indemnified
party under this Section 1.7 of notice of the
commencement of any action (including any
governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any
indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that
an indemnified party shall have the right to retain
its own counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to
actual or potential conflict of interests between
such indemnified party and any other party
represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of
any such action shall relieve such indemnifying party
of liability to the indemnified party under this
Section 1.7 to the extent the indemnifying party is
prejudiced as a result thereof, but the omission so
to deliver written notice to the indemnified party
will not relieve it of any liability that it may have
to any indemnified party otherwise than under this
Section 1.7.
(d) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate
to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on
file with the SEC at the time the registration
statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC
Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity
agreement shall not inure to the
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INTEL / THRUSTMASTER CONFIDENTIAL
benefit of any person if a copy of the Final
Prospectus was timely furnished to the indemnified
party and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to
the time such action is required by the Securities
Act.
(e) CONTRIBUTION. In order to provide for just and
equitable contribution to joint liability under the
Securities Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim
for indemnification pursuant to this Section 1.7 but
it is judicially determined (by the entry of a final
judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such
indemnification may not be enforced in such case
notwithstanding the fact that this Section 1.7
provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required
on the part of any such selling Holder or any such
controlling person in circumstances for which
indemnification is provided under this Section 1.7;
then, and in each such case, the Company and such
Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be
subject (after contribution from others) in such
proportion so that such Holder is responsible for the
portion represented by the percentage that the public
offering price of its Registrable Securities offered
by and sold under the registration statement bears to
the public offering price of all securities offered
by and sold under such registration statement, and
the Company and other selling Holders are responsible
for the remaining portion; PROVIDED, HOWEVER, that,
in any such case: (A) no such Holder will be required
to contribute any amount in excess of the public
offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will
be entitled to contribution from any person or entity
who was not guilty of such fraudulent
misrepresentation.
(f) SURVIVAL. The obligations of the Company and Holders
under this Section 1.7 shall survive until the fifth
anniversary of the completion of any offering of
Registrable Securities in a registration statement,
regardless of the expiration of any statutes of
limitation or extensions of such statutes.
1.8 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall
have no obligations pursuant to Sections 1.3 and 1.4 with
respect to any Registrable Securities proposed to be sold by a
Holder in a registration pursuant to Section 1.3 or 1.4 more
than seven (7) years after the date of this Agreement, or, if,
in the opinion of counsel to the Company, all such Registrable
Securities proposed to be
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INTEL / THRUSTMASTER CONFIDENTIAL
sold by a Holder may then be sold under Rule 144 in one
transaction without exceeding the volume limitations
thereunder.
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EXHIBIT 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(Dollars in thousands, except net loss per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding - basic 4,874 4,372 4,829 4,337
Common stock equivalents
arising from stock options - - - -
-------- -------- -------- -------
Weighted average number of
common shares outstanding - diluted 4,874 4,372 4,829 4,337
======== ======== ======== =======
Net loss from continuing operations $ (264) $ (132) $ (360) $ (264)
======== ======== ======== =======
Net loss from discontinued operations $(13,040) $ (2,697) $(13,202) $(3,806)
======== ======== ======== =======
Net loss per share from continuing operations:
Basic $ (0.05) $ (0.03) $ (0.07) $ (0.06)
======== ======== ======== =======
Diluted $ (0.05) $ (0.03) $ (0.07) $ (0.06)
======== ======== ======== =======
Net loss per share from discontinued operations:
Basic $ (2.68) $ (0.62) $ (2.73) $ (0.88)
======== ======== ======== =======
Diluted $ (2.68) $ (0.62) $ (2.73) $ (0.88)
======== ======== ======== =======
</TABLE>
